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Testing forward exchange rate unbiasedness efficiently: a semiparametric approach

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Abstract

We apply semiparametric efficient estimation procedures for a seemingly unrelated regression model where the multivariate error density is elliptically symmetric to study the efficiency of the foreign exchange market. We consider both cointegrating regressions and standard stationary regressions. The elliptical symmetry assumption allows us to avoid the curse of dimensionality problem that typically arises in multivariate semiparametric estimation procedures, because the multivariate elliptically symmetric density function can be written as a function of a scalar transformation of the observed multivariate data. We test the unbiasedness hypothesis on both weekly and daily exchange rate data and strongly reject unbiasedness at the weekly horizon, but fail to reject the unbiasedness hypothesis on the daily data. Estimates of the semiparametric procedure in some cases differ substantially from traditional OLS estimates.

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File URL: http://www.cema.edu.ar/publicaciones/download/volumen7/hodgson.pdf
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Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VII (2004)
Issue (Month): (November)
Pages: 325-353

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Handle: RePEc:cem:jaecon:v:7:y:2004:n:2:p:325-353

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Keywords: forward exchange market; time series econometrics; nonparametric statistics;

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References

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Cited by:
  1. Amengual, Dante & Sentana, Enrique, 2010. "A comparison of mean-variance efficiency tests," Journal of Econometrics, Elsevier, vol. 154(1), pages 16-34, January.
  2. Dhekra Azouzi & Rohit Vishal Kumar & Chaker Aloui, 2011. "Forward Rate Unbiasedness Hypothesis in the Tunisian Exchange Rate Market," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 1(2), pages 17-44, July.

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